FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended September 30, 1999
===================== ==================================== =====================
Commission file number 333-13113
- --------------------- ------------------------------------ ---------------------
REDWOOD MORTGAGE INVESTORS VIII
- --------------------------------------------------------------------------------
(exact name of registrant as specified in its charter)
CALIFORNIA 94-3158788
- --------------------------------------------------------------------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
- --------------------------------------------------------------------------------
(address of principal executive office)
(650) 365-5341
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
------------------ ----------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE XX
---------- ------------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
ASSETS
Sept 30, 1999 Dec 31, 1998
(unaudited) (audited)
---------------- ----------------
Cash $1,038,226 $528,688
---------------- ----------------
Accounts receivable:
Mortgage Investments, secured by
deeds of trust 37,428,246 31,905,958
Accrued interest on Mortgage Investment 539,720 459,418
Advances on Mortgage Investments 18,171 211,145
Accounts receivable, unsecured 49,066 48,849
---------------- ----------------
38,035,203 32,625,370
Less allowance for doubtful accounts 799,607 414,073
---------------- ---------------
37,235,596 32,211,297
---------------- ---------------
Real estate owned, acquired through foreclosure,
held for sale 0 66,000
Investment in limited liability corporation,
at cost which approximates market 356,358 304,139
Prepaid expense-deferred loan fee 9,375 11,835
$38,639,555 $33,121,959
=============== ================
See accompanying notes to financial statements
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
LIABILITIES AND PARTNERS' CAPITAL
Sept 30, 1999 Dec 31, 1998
(unaudited) (audited)
------------- --------------
Liabilities:
Accounts payable and accrued expenses $0 $2,500
Note payable - bank line of credit 4,452,000 5,947,000
Deferred interest income 341,978 124,805
Subscriptions to partnership in applicant status 0 0
------------- --------------
4,793,978 6,074,305
------------- --------------
Partners' Capital:
Limited Partners' Capital, subject to
redemption (note 4E):
Net of unallocated syndication costs of
$376,858 and $353,875 for September 30,
1999 and December 31, 1998, and
Formation Loan receivable of
$1,965,413 and $1,640,904 for
September 30, 1999 and December 31,
1998, respectively 33,817,316 27,025,331
General Partners' Capital, net of unallocated
syndication costs of $3,807 and $3,574
for September 30, 1999 and December 31,
1998, respectively 28,261 22,323
-------------- --------------
Total Partners' Capital 33,845,577 27,047,654
============== ==============
Total Liabilities and Partners' Capital $38,639,555 $33,121,959
=============== ==============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
9 mos. ended 9 mos. ended 3 mos. ended 3 mos. ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
(unaudited) (unaudited) (unaudited) (unaudited)
=============== =============== =============== ================
Revenues:
<S> <C> <C> <C> <C>
Interest on Mortgage Investments $3,268,965 $2,423,754 $1,151,637 $871,715
Interest on bank deposits 4,939 7,483 1,990 2,425
Late charges 23,710 17,410 11,082 5,365
Miscellaneous 52,124 572 51,017 150
================ ============ ================ ===============
3,349,738 2,449,219 1,215,726 879,655
----------------- ------------ ---------------- ---------------
Expenses:
Mortgage servicing fees 295,354 226,296 79,017 93,100
Interest on note payable - bank 459,433 371,011 161,380 128,924
Amortization of loan origination fees 7,460 9,206 3,042 4,163
Provision for doubtful accounts and
losses on real estate acquired through foreclosure 374,138 77,189 180,677 40,744
Asset management fees - General Partners 30,248 22,898 11,125 8,210
Amortization of organization costs 0 1,875 0 625
Clerical costs through Redwood Mortgage Corp. 60,541 49,133 21,248 16,964
Professional services 30,614 24,861 794 550
Printing, supplies and postage 3,526 2,959 1,361 633
Other 8,695 9,975 2,862 3,116
----------------- ------------ ---------------- ---------------
1,270,009 795,403 461,506 297,029
----------------- ------------ ---------------- ---------------
Income before interest credited to partners
in applicant status 2,079,729 1,653,816 754,220 582,626
Interest credited to partners in applicant status 1,568 3,657 520 273
---------------- ------------ ---------------- ---------------
Net Income $2,078,161 $1,650,159 $753,700 $582,353
================= ============ ================ ===============
Net Income: to General Partners (1%) $20,782 $16,501 $7,537 $5,823
to Limited Partners (99%) 2,057,379 1,633,658 746,163 576,530
================= ============ ================ ===============
$2,078,161 $1,650,159 $753,700 $582,353
================= ============ ================ ===============
Net income for $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $62.38 $62.38 $20.38 $20.37
================= ============ ================ ===============
- where Partner received income in
monthly distributions $60.71 $60.72 $20.24 $20.24
================= ============ ================ ===============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
------------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 0 $11,784,937 $(322,677) $(775,229) $10,687,031
Contributions on Application 4,172,718 0 0 0 0
Formation Loan increases 0 0 0 (314,996) (314,996)
Formation Loan payments 0 0 0 8,961 8,961
Interest credited to partners in 2,618 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (863) 0 0 0 0
Transfers to Partners' capital (3,863,536) 3,859,312 0 0 3,859,312
Net Income 0 1,218,598 0 0 1,218,598
Syndication costs incurred 0 0 (212,542) 0 (212,542)
Allocation of syndication costs 0 (116,523) 116,523 0 0
Partners' withdrawals 0 (553,027) 0 0 (553,027)
Early withdrawal penalties 0 (12,108) 4,506 7,558 (44)
----------- ----------- ----------- ------------- -----------
Balances at December 31, 1996 $310,937 $16,181,189 $ (414,190) $ (1,073,706) $14,693,293
Contributions on Application 5,251,969 0 0 0 0
Formation Loan increases 0 0 0 (420,510) (420,510)
Formation Loan payments 0 0 0 98,999 98,999
Interest credited to partners in
applicant status 9,562 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,849) 0 0 0 0
Transfers to Partners' capital (5,570,619) 5,565,372 0 0 5,565,372
Net Income 0 1,780,968 0 0 1,780,968
Syndication costs incurred 0 0 (188,517) 0 (188,517)
Allocation of syndication costs 0 (166,023) 166,023 0 0
Partners' withdrawals 0 (614,837) 0 0 (614,837)
Early withdrawal penalties 0 (13,261) 4,690 8,524 (47)
---------- ----------- ---------- ------------ -----------
Balances at December 31, 1997 $0 $22,733,408 $(431,994) $(1,386,693) $20,914,721
Contributions of Application 5,105,559 0 0 0 0
Formation Loan increases 0 0 0 (403,518) (403,518)
Formation Loan payments 0 0 0 133,580 133,580
Interest credited to partners in
applicant status 4,454 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (1,553) 0 0 0 0
Transfers to Partners' capital (5,108,460) 5,103,359 0 0 5,103,359
Net Income 0 2,251,387 0 0 2,251,387
Syndication costs incurred 0 0 (126,453) 0 (126,453)
Allocation of syndication costs 0 (196,317) 196,317 0 0
Partners' withdrawals 0 (847,661) 0 0 (847,661)
Early withdrawal penalties 0 (24,066) 8,255 15,727 (84)
----------- ----------- ---------- ------------ -----------
Balances at December 31, 1998 $ 0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
PARTNERS' CAPITAL
--------------------------------------------------------------
LIMITED PARTNERS' CAPITAL
--------------------------------------------------------------
Capital
Partners In Account Unallocated Formation
Applicant Limited Syndication Loan
Status Partners Costs Receivable Total
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 $ 0 $29,020,110 $(353,875) $(1,640,904) $27,025,331
Contributions on Application 6,170,851 0 0 0 0
Formation Loan increases 0 0 0 (466,772) (466,772)
Formation Loan payments 0 0 0 121,550 121,550
Interest credited to partners in
applicant status 1,568 0 0 0 0
Upon admission to Partnership:
Interest withdrawn (706) 0 0 0 0
Transfers to Partners' capital (6,171,713) 6,171,713 0 0 6,171,713
Net Income 0 2,057,379 0 0 2,057,379
Syndication costs incurred 0 0 (127,990) 0 (127,990)
Allocation of syndication costs 0 (94,134) 94,134 0 0
Partners' withdrawals 0 (963,786) 0 0 (963,786)
Early withdrawal penalties 0 (31,695) 10,873 20,713 (109)
----------- ----------- ----------- ------------ -----------
Balances at September 30, 1999 $0 $36,159,587 $(376,858) $(1,965,413) $33,817,316
----------- ----------- ----------- ------------ -----------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
PARTNERS' CAPITAL
----------------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------------------
Capital Account Unallocated Total Partners'
General Partners Syndication Costs Total Capital
---------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $11,325 $(3,258) $8,067 $10,695,098
Contributions on Application 0 0 0 0
Formation loan increases 0 0 0 (314,996)
Formation loan payments 8,961
Interest credited to partner in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 4,224 0 4,224 3,863,536
Net Income 12,309 0 12,309 1,230,907
Syndication costs incurred 0 (2,147) (2,147) (214,689)
Allocation of syndication costs (1,177) 1,177 0 0
Partner' withdrawals (11,132) 0 (11,132) (564,159)
Early withdrawal penalties 0 44 44 0
--------- --------- -------- -----------
Balances at December 31, 1996 $15,549 $ (4,184) $11,365 $14,704,658
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (420,510)
Formation Loan payments 0 0 0 98,999
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,247 0 5,247 5,570,619
Net Income 17,990 0 17,990 1,798,958
Syndication costs incurred 0 (1,904) (1,904) (190,421)
Allocation of syndication costs (1,677) 1,677 0 0
Partners' withdrawals (16,313) 0 (16,313) (631,150)
Early withdrawal penalties 0 47 47 0
------- -------- ------- -----------
Balances at December 31, 1997 $20,796 $(4,364) $16,432 $20,931,153
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (403,518)
Formation Loan payments 0 0 0 133,580
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 5,101 0 5,101 5,108,460
Net Income 22,741 0 22,741 2,274,128
Syndication costs incurred 0 (1,277) (1,277) (127,730)
Allocation of syndication costs (1,983) 1,983 0 0
Partners' withdrawals (20,758) 0 (20,758) (868,419)
Early withdrawal penalties 0 84 84 0
-------- -------- --------- -----------
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
See accompanying notes to financial statements
(continued on next page)
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
PARTNERS' CAPITAL
-------------------------------------------------------------
GENERAL PARTNERS' CAPITAL
-------------------------------------------------------------
Capital Account Unallocated Total Partners'
General Partners Syndication Costs Total Capital
---------------- ----------------- ------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1998 $25,897 $(3,574) $22,323 $27,047,654
Contributions on Application 0 0 0 0
Formation Loan increases 0 0 0 (466,772)
Formation Loan payments 0 0 0 121,550
Interest credited to partners in
applicant status 0 0 0 0
Upon admission to partnership:
Interest withdrawn 0 0 0 0
Transfers to Partners' capital 6,171 0 6,171 6,177,884
Net Income 20,782 0 20,782 2,078,161
Syndication costs incurred 0 (1,293) (1,293) (129,283)
Allocation of syndication costs (951) 951 0 0
Partners' withdrawals (19,831) 0 (19,831) (983,617)
Early withdrawal penalties 0 109 109 0
=============== ================ ================= ================
Balances at September 30, 1999 $32,068 $(3,807) $28,261 $33,845,577
=============== ================ ================= ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
(unaudited) (unaudited)
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $2,078,161 $1,650,159
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 1,875
Provision for doubtful accounts. 374,138 77,189
Provision for losses (gains) on real estate held for sale 0 0
(Increase) decrease in Assets:
Accrued interest & advances 112,672 146,677
Due from related companies 0 2,999
Deferred loan fee 2,460 (3,893)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (2,500) (3,355)
Deferred interest income 217,173 (83,066)
------------- -------------
Net cash provided by operating activities 2,782,104 1,788,585
------------- -------------
Cash flows from investing activities:
Principal collected on Mortgage Investments 12,732,358 8,325,018
Mortgage Investments made (18,254,646) (13,520,790)
Disposition of real estate held for sale 77,063 0
Additions to real estate held for sale (1,886) (1,031)
Additions to limited liability Corporation (50,000) (50,000)
Accounts receivables, unsecured - (disbursements) receipts (217) (1,005)
------------ ------------
Net cash used in investing activities (5,497,328) (5,247,808)
------------ ------------
Cash flows from financing activities
Increase (decrease) in note payable-bank (1,495,000) 607,000
Contributions by partner applicants 6,177,022 3,480,135
Interest credited to partners in applicant status 1,568 3,657
Interest withdrawn by partners in applicant status (706) (1,333)
Partners withdrawals (983,617) (615,988)
Syndication costs incurred (129,283) (94,941)
Formation Loan increases (466,772) (272,226)
Formation Loan collections 121,550 104,333
----------- ------------
Net cash provided by financing activities 3,224,762 3,210,637
----------- ------------
Net increase (decrease) in cash and cash equivalents 509,538 (248,586)
Cash - beginning of period 528,688 663,159
----------- ------------
Cash - end of period $1,038,226 $414,573
----------- ------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VIII, (the "Partnership") is a California
Limited Partnership, of which the General Partners are D. Russell Burwell,
Michael R. Burwell and Gymno Corporation, a California corporation owned and
operated by the individual General Partners. The Partnership was organized to
engage in business as a mortgage lender for the primary purpose of making
Mortgage Investments secured by Deeds of Trust on California real estate.
Mortgage Investments are being arranged and serviced by Redwood Mortgage Corp.,
an affiliate of the General Partners. At September 30, 1999, the Partnership was
in the offering stage, wherein contributed capital totalled $31,760,986 in
limited partner contributions of an approved aggregate offering of $45,000,000,
in units of $100 each (317,609.86). As of that date, $0 remained in applicant
status.
A minimum of 2,500 units ($250,000) and a maximum of 150,000 units
($15,000,000) were initially offered through qualified broker-dealers. This
initial offering was closed in October, 1996. In December 1996, the Partnership
commenced a second offering of an additional 300,000 Units ($30,000,000). As
Mortgage Investments are identified, partners are transferred from applicant
status to admitted partners participating in Mortgage Investment operations.
Each month's income is distributed to partners based upon their proportionate
share of partners' capital. Some partners have elected to withdraw income on a
monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan Sales commissions are not paid
directly by the Partnership out of the offering proceeds. Instead, the
Partnership lends to Redwood Mortgage Corp., an affiliate of the General
Partners, amounts to pay all sales commissions and amounts payable in connection
with unsolicited orders. This loan is referred to as the "Formation Loan". It is
unsecured and non-interest bearing.
The Formation Loan relating to the initial $15,000,000 offering totalled
$1,074,840, which was 7.2% of limited partners contributions of $16,828,969
which was under the limit of 9.1% relative to the initial offering. It is to be
repaid, without interest, in ten annual installments of principal, which
commenced on January 1, 1997, following the year the initial offering closed,
which was in 1996. The Formation Loan relating to the second offering
($30,000,000) totalled $1,306,185 at September 30, 1999, which was 7.7% of the
Limited Partners contributions of $16,828,969.
Sales commissions range from 0% (units sold by General Partners) to 9% of
gross proceeds. The Partnership anticipates that the sales commissions will
approximate 7.6% based on the assumption that 65% of investors will elect to
reinvest earnings, thus generating 9% commissions. The principal balance of the
Formation Loan will increase as additional sales of units are made each year.
The amount of the annual installment payment made by Redwood Mortgage Corp.,
during the offering stage, will be determined at annual installments of
one-tenth of the principal balance of the Formation Loan as of December 31 of
each year. Such payment shall be due and payable by December 31 of the following
year with the first such payment beginning December 31, 1997. Upon completion of
the offering, the balance will be repaid in ten equal annual installments.
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
The following summarizes Formation Loan transactions to September 30, 1999:
Initial Subsequent
Offering of Offering of
$15,000,000 $30,000,000 Total
-------------- ------------ -----------
<S> <C> <C> <C>
Limited Partner contributions $14,932,017 $16,828,969 $31,760,986
-------------- ----------- -----------
Formation Loan made $1,074,840 1,306,185 2,381,025
Payments to date (259,159) (103,930) (363,089)
Early withdrawal penalties applied (52,523) 0 (52,523)
-------------- ----------- -----------
Balance September 30, 1999 $763,158 $1,202,255 $1,965,413
-------------- ----------- -----------
Percent loaned of Partners' contributions 7.2% 7.7% 7.5%
-------------- ----------- -----------
</TABLE>
The Formation Loan, which is receivable from Redwood Mortgage Corp., an
affiliate of the General Partners, has been deducted from Limited Partners'
Capital on the balance sheet. As amounts are collected from Redwood Mortgage
Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses Organizational and offering
expenses other than sales commissions, but including printing costs, attorney
and accountant fees, registration and filing fees and other costs, will be paid
by the Partnership.
Through September 30, 1999, organization costs of $12,500 and syndication
costs of $1,118,044 have been incurred by the Partnership with the following
distribution:
<TABLE>
Syndication Organization
Costs Costs Total
------------- ------------- ---------------
<S> <C> <C> <C>
Costs incurred $1,118,044 $12,500 $1,130,544
Early withdrawal penalties applied (28,772) 0 (28,772)
Allocated and amortized to date (708,607) (12,500) (721,107)
-------------- ------------- ---------------
September 30, 1999 balance $380,665 $0 $380,665
============== ============= ===============
</TABLE>
Organization and syndication costs attributable to the initial offering
($15,000,000) were limited to the lesser of 10% of the gross proceeds or
$600,000 with any excess being paid by the General Partners. Applicable gross
proceeds were $14,932,017. Related expenditures totalled $582,365 ($569,865
syndication costs plus $12,500 organization expense) or 3.90%.
As of September 30, 1999, syndication costs attributable to the subsequent
offering ($30,000,000) totalled $548,179 because the costs of the offering
becomes greater at the initial stages due to professional and filing fees
related to formulating the offering documents. The syndication costs payable by
the Partnership are estimated to be $1,200,000 if the maximum is sold (4% of
$30,000,000). The General Partners will pay any syndication expenses (excluding
selling commissions) in excess of ten percent of the gross proceeds or
$1,200,000.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a Mortgage Investment is categorized as impaired, interest is no longer
accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. Therefore they are
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a Mortgage Investment, with due consideration for the
fair value of collateral, is less than the recorded investment and related
amounts due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was
essentially the valuation method previously used on impaired loans.
At September 30, 1999, December 31, 1998, and December 31, 1997, there were
no Mortgage Investments categorized as impaired by the Partnership. Had there
been a computed amount for the reduction in carrying values of impaired loans,
the reduction would have been included in the allowance for doubtful accounts.
As presented in Note 10 to the financial statements, the average Mortgage
Investment to appraised value of security at the time the loans were consummated
was 61.09%. When a Mortgage Investment is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio has the tendency to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real Estate owned, held for sale, includes real estate acquired through
foreclosure and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell. At September 30, 1999, one such property
existed and is held in a Limited Liability Corporation. (see notes 2F and 7)
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
Effective January 1, 1996, the Partnership adopted the provisions of
Statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of". The adoption of SFAS 121 did not have a material impact on the
Partnership's financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Limited Liability Corporation (see Note 7)
The Partnership carries its investment in a Limited Liability Corporation
as investment in real estate, which is at the lower of costs or fair value, less
estimated costs to sell.
G. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
H. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, and filing fees.
Organizational costs have been capitalized and were amortized over a five year
period. Syndication costs are charged against partners' capital and are being
allocated to individual partners consistent with the partnership agreement.
I. Allowance for Doubtful Accounts
Mortgage Investments and the related accrued interest, fees, and advances
are analyzed on a continuous basis for recoverability. Delinquencies are
identified and followed as part of the Mortgage Investment system. A provision
is made for doubtful accounts to adjust the allowance for doubtful accounts to
an amount considered by management to be adequate, with due consideration to
collateral values, to provide for unrecoverable accounts receivable, including
impaired Mortgage Investments, other Mortgage Investments, accrued interest and
advances on Mortgage Investments, and other accounts receivable (unsecured). The
composition of the allowance for doubtful accounts as of September 30, 1999,
December 31, 1998, and 1997 was as follows:
September 30, December 31, December 31,
1999 1998 1997
------------- ------------ ------------
Impaired Mortgage Investments $0 $0 $0
Other Mortgage Investments 755,607 370,073 213,500
Accounts receivable, unsecured 44,000 44,000 44,000
------------- ------------ ------------
$799,607 $414,073 $257,500
============= ============ ============
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
J. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited Partners' pro rata share of Partners' Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or selected other options. However, the net income per $1,000 average
investment has approximated those whose investments and options have remained
constant.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions
For fees in connection with the review, selection, evaluation, negotiation
and extension of Partnership Mortgage Investments in an amount up to 12% of the
Mortgage Investments until 6 months after the termination date of the offering.
Thereafter, Mortgage Investment brokerage commissions will be limited to an
amount not to exceed 4% of the total Partnership assets per year. The Mortgage
Investment brokerage commissions are paid by the borrowers, and thus, not an
expense of the Partnership. In 1998, Mortgage Investment brokerage commissions
paid by the borrowers was $604,836 and for the nine months through September 30,
1999 was $492,343.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees of up to 1/8 of 1% (1.5% annual) of the
unpaid principal, is paid to Redwood Mortgage Corp., or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
mortgage is located. Mortgage servicing fees of $295,354, $295,052, $189,692 and
$155,912 were incurred for the nine month period ended September 30, 1999, and
for the years 1998, 1997 and 1996 respectively.
C. Asset Management Fee
The General Partners receive monthly fees for managing the Partnership's
Mortgage Investment portfolio and operations up to 1/32 of 1% of the "net asset
value" (3/8 of 1% annual). Management fees of $30,248, $31,651, $24,966 and
$17,053 were paid for the nine month period ended September 30, 1999, and for
years 1998, 1997, and 1996, respectively.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
mortgage assumption and mortgage extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the General Partners.
E. Income and Losses
All income will be credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) shall be a total of 1%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
F. Operating Expenses
The General Partners and their affiliate, Redwood Mortgage Corp., are
reimbursed by the Partnership for all operating expenses actually incurred by
them on behalf of the Partnership, including without limitation, out-of-pocket
general and administration expenses of the Partnership, accounting and audit
fees, legal fees and expenses, postage and preparation of reports to Limited
Partners. Such reimbursements are reflected as expenses in the Statement of
Income.
The General Partners collectively or severally are to contribute 1/10 of 1%
in cash contributions, as proceeds from the offering are admitted to limited
Partner capital. As of September 30, 1999 a General Partner, GYMNO Corporation,
contributed $31,759, as capital in accordance with Section 4.02(a) of the
Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units are not admitted to
the Partnership until appropriate lending opportunities are available. During
the period prior to the time of admission, which is anticipated to be between
1-120 days in most cases, purchasers' subscriptions will remain irrevocable and
will earn interest at money market rates, which are lower than the anticipated
return on the Partnership's Mortgage Investment portfolio.
During the nine months period ending September 30, 1999, and for the years
ending December 31, 1998, 1997, and 1996, interest totalling $1,568, $4,454,
$9,562 and $2,618 respectively, was credited to partners in applicant status. As
Mortgage Investments were made and partners were transferred to regular status
to begin sharing in income from Mortgage Investments secured by deeds of trust,
the interest credited was either paid to the investors or transferred to
partners' capital along with the original investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless terminated
sooner, as provided. The normal provisions do not allow for capital withdrawal
for the first five years. Early withdrawal is subject to the penalty provision
set forth in (E) below. Thereafter, investors have the right to withdraw over a
five-year period, or longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
At subscription, investors elect either to receive monthly, quarterly or
annual distributions of earnings, or to allow earnings to compound. Subject to
certain limitations, a compounding investor may subsequently change his
election, but an investor's election to take cash distributions is irrevocable.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is non-liquid. Limited Partners
have no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units. In
order to provide a certain degree of liquidity to the Limited Partners, after a
one-year period, Limited Partners may withdraw all or part of their Capital
Account from the Partnership in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount withdrawn early and will be deducted from the
Limited Partners' Capital Account.
After five years from the date of purchase of the Units, Limited Partners
have the right to withdraw from the Partnership on an installment basis,
generally this is done over a five year period in twenty (20) quarterly
installments. Once a Limited Partner has been in the Partnership for the minimum
five year period, no penalty will be imposed if withdrawal is made in twenty
(20) quarterly installments or longer. Notwithstanding the five-year (or longer)
withdrawal period, the General Partners may liquidate all or part of a Limited
Partner's capital account in four quarterly installments beginning on the last
day of the calendar quarter following the quarter in which the notice of
withdrawal is given. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a Limited Partner's
capital is restricted to the availability of Partnership cash flow.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner is admitted to
the Partnership and ending 3 months after the offering termination date, the
General Partners shall guarantee an earnings rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco on a
monthly basis, up to a maximum interest rate of 12%. To date, actual realization
exceeded the guaranteed amount for each month.
NOTE 5- LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions.
NOTE 6 - NOTE PAYABLE - BANK LINE OF CREDIT
The Partnership has a bank line of credit expiring September 30, 2000, of
up to $9,000,000 at .25% over prime secured by its Mortgage Investment
portfolio. The note payable balances were $4,452,000, $5,947,000 and $5,640,000
at September 30, 1999, December 31, 1998, and 1997, respectively, and the
interest rate was 8.50% at September 30, 1999, (8.25% prime plus .25%).
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
NOTE 7 - INVESTMENT IN LIMITED LIABILITY CORPORATION
As a result of acquiring real property through foreclosure, the Partnership
has contributed its interest (principally land) to a Limited Liability
Corporation (LLC), which is owned 100% by the Partnership. The LCC will complete
the construction and sell the property. The Partnership expects to realize a
profit from the venture.
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
Sept. 30, Dec. 31 Dec. 31
1999 1998 1997
----------- ----------- -----------
Net assets - Partners' Capital per
financial statements $33,845,577 $27,047,654 $20,931,153
Unamortized syndication costs 380,665 357,449 436,358
Allowance for doubtful accounts 799,607 414,073 257,500
Formation Loans receivable 1,965,413 1,640,904 1,386,693
============== =========== ===========
Net assets tax basis $36,991,262 $29,460,080 $23,011,704
============== =========== ===========
In 1998 and 1997, approximately 61% of taxable income was allocated to tax
exempt organizations, i.e., retirement plans. Such plans do not have to file
income tax returns unless their "unrelated business income" exceeds $1,000.
Applicable amounts become taxable when distribution is made to participants.
NOTE 9 - FAIR VALUE OF FINANCIAL INVESTMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents. The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The carrying value of Mortgage Investments (see note 2(c) is
$37,428,246. The fair value of these investments of $35,317,050 is estimated
based upon projected cash flows discounted at the estimated current interest
rates at which similar loans would be made. The applicable amount of the
allowance for doubtful accounts along with accrued interest and advances related
thereto should also be considered in evaluating the fair value versus the
carrying value.
<PAGE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
NOTE 10- ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At
September 30, 1999, there were 56 Mortgage Investments outstanding with the
following characteristics:
Number of Mortgage Investments outstanding 56
Total Mortgage Investments outstanding $37,428,246
Average Mortgage Investment outstanding $668,362
Average Mortgage Investment as percent of total 1.79%
Average Mortgage Investment as percent of Partners' Capital 1.97%
Largest Mortgage Investment outstanding $2,600,000
Largest Mortgage Investment as percent of total 6.95%
Largest Mortgage Investment as percent of Partners' Capital 7.68%
Number of counties where security is located (all California) 12
Largest percentage of Mortgage Investments in one county 28.30%
Average Mortgage Investment to appraised value of security
at time Mortgage Investment was consumated 61.09%
Number of Mortgage Investments in foreclosure status 0
Amount of Mortgage Investments in foreclosure $0
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VIII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (audited) AND
SEPTEMBER 30, 1999 (unaudited)
The following categories of mortgage investments are pertinent at September 30, 1999, December 31, 1998 and 1997:
September 30 December 31 December 31
-------------- ------------- -------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
First Trust Deeds $21,539,375 $22,349,185 $17,103,865
Second Trust Deeds 11,890,329 8,469,460 8,163,624
Third Trust Deeds 3,998,542 1,087,313 37,500
-------------- ------------- ------------
Total mortgage investments 37,428,246 31,905,958 25,304,989
Prior liens due other lenders 27,747,834 26,411,096 24,224,566
------------- ------------ ------------
Total debt $65,176,080 $58,317,054 $49,529,555
------------- ------------- ------------
Appraised property value at time of loan $106,683,182 $98,011,150 $88,714,541
------------- ------------- ------------
Total investments as a percent of appraised value 61.09% 59.50% 55.83%
------------- ------------- ------------
Investments by Type of Property
Owner occupied homes $9,840,088 $6,450,199 $2,445,423
Non-Owner occupied homes 9,011,873 8,789,445 5,318,722
Apartments 2,466,030 3,256,602 5,982,649
Commercial 16,110,255 13,409,712 11,558,195
------------- ------------- -----------
$37,428,246 $31,905,958 $25,304,989
============= ============= ============
</TABLE>
The interest rates on the mortgage investments range from 8.00% to 14.50%
at September 30, 1999.
Scheduled maturity dates of mortgage investments as of September 30, 1999
are as follows:
Year Ending
December 31,
============
1999 $7,557,325
2000 11,775,549
2001 13,750,272
2002 430,372
2003 419,997
Thereafter 3,494,731
--------------
$37,428,246
==============
The scheduled maturities for 1999 include approximately $975,675 in eight
Mortgage Investments which were past maturity at September 30, 1999. The
interest payment on one Mortgage Investment was more than 90 days late.
The cash balance at June 30, 1999, of $1,038,226 was in one bank with
interest bearing balances totalling $765,870. The balance exceeded FDIC
insurance limits (up to $100,000 per bank) by $938,226. This bank is the same
financial institution that has provided the Partnership with the $9,000,000
limit line of credit. At September 30, 1999, draw down against this facility was
$4,452,000 and the interest payment was current.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 30, 1999, the Partnership was in the offering stage of its
second offering, ($30,000,000). Contributed capital totalled $14,932,017 for the
first offering and $16,828,969 for the second offering an aggregate of
$31,760,986 (Limited Partners) as of September 30, 1999. Of this amount, $0
remained in applicant status. Accordingly, together with the initial approved
offering of $15,000,000 the Partnership has approval for an aggregate offering
of $45,000,000 in Units of $100 each.
Partnership Mortgage Investments outstanding were:
<TABLE>
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, 9 months through
1994 1995 1996 1997 1998 Sept 30, 1999
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage
Investments
Outstanding $6,484,707 $12,047,252 $15,642,990 $25,304,989 $31,905,958 $37,428,246
</TABLE>
The primary reason for the continuing increase in Mortgage Investments
Outstanding was due to additional capital admitted to the Partnership through
sale of Limited Partnership Units and reinvestment of Limited Partners earnings.
During the same period, additional Limited Partners' capital contribution
and reinvestment of earnings have totalled:
<TABLE>
9 months
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31, through Sept
1994 1995 1996 1997 1998 30, 1999
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Capital
Contribution $4,508,825 $3,834,799 $3,863,536 $5,565,372 $5,100,458 $6,170,851
Reinvestment
of earnings $239,956 $524,988 $800,218 $1,119,465 $1,440,687 $1,472,257
</TABLE>
To a lesser extent, Mortgage Investments outstanding have also increased
through the utilization of the Partnership's line of credit. The effect of more
outstanding Mortgage Investments raised the interest earned on Mortgage
Investments for the years ended:
<TABLE>
9 months
through
Dec 31, 1994 Dec 31, 1995 Dec 31, 1996 Dec 31, 1997 Dec 31, 1998 Sept 30, 1999
- ----------------------------------------------------------------------------------------
<S>
<C> <C> <C> <C> <C> <C>
$480,110 $1,031,029 $1,718,208 $2,613,008 $3,376,293 $3,268,965
</TABLE>
The Partnership began funding Mortgage Investments on April 14, 1993 and as
of September 30, 1999, distributed earnings at an average annualized yield of
8.36%.
Mortgage interest rates have varied only slightly since the program
started. In the immediate future, interest rates are expected to fluctuate only
slightly. The General Partners cannot at this time predict at what levels
interest rates will be in the future. Although the rates charged by the
Partnership are influenced by the level of interest rates in the market, the
General Partners do not anticipate that rates charged by the Partnership to its
borrowers will change significantly. Based upon the rates payable in connection
with existing Mortgage Investments, and expected interest rates which will be
charged by the Partnership, the General Partners' anticipate an annualized yield
that will range between eight & nine percent (8% - 9%).
In 1995, the Partnership established a line of credit with a commercial
bank secured by its Mortgage Investments and since it's inception has increased
the limit from $3,000,000 to $9,000,000. For the years ended December 31, 1996,
1997, 1998, and nine months through September 30, 1999, interest on Note
Payable-Bank was $188,638, $340,633, $513,566 and $459,433 respectively. From
1997 through September 30, 1999, the increase in interest on notes payable-Bank
<PAGE>
has been attributed to a higher overall credit facility utilization. As of
September 30, 1999 the Partnership borrowed $4,452,000 at an interest rate of
prime +.25% (8.50%). This facility could again increase as the Partnership's
capital increases. This added source of funds will help in maximizing the
Partnership's yield by allowing the Partnership to minimize the amount of funds
in lower yield investment accounts when appropriate Mortgage Investments are not
available. Additionally, the Mortgage Investments made by the Partnership bear
interest at a rate in excess of the rate payable to the bank which extended the
line of credit. The amount to be retained by the Partnership, after payment of
the line of credit cost, will be greater than those without the use of the line
of credit. As of September 30, 1999, the balance remained at $8,000,000 and in
accordance with the line of credit, the Partnership paid all accrued interest as
of that date.
The Partnership's income and expenses, accruals and delinquencies are
within the normal range of the General Partners' expectations, based upon their
experience in managing similar partnerships over the last twenty-two years.
Mortgage servicing fees increased from $155,912 to $189,692 to $295,052 and to
$295,354 for the years ended December 31, 1996, 1997, 1998 and nine months
through September 30, 1999. The mortgage servicing fees increased primarily due
to increase in the outstanding Mortgage Investment portfolio. Asset Management
fees increased from $17,053 to $24,966 to $31,651 and to $30,248 for the years
ended December 31, 1996, 1997, 1998, and nine months through September 30, 1999
respectively. The Asset Management fee increase was due primarily to the
increase in Partners capital which the General Partners are managing. All other
Partnership expenses fluctuated within a narrow range commonly expected to
occur, except for interest on note payable - bank which was discussed earlier in
the Management Discussion and Analysis of Financial Condition and Results of
Operations. Borrower's foreclosures, as set forth under Results of Operations,
are a normal aspect of Partnership operations and the General Partners
anticipate that they will not have a material effect on liquidity. Currently no
foreclosures exist. Cash is constantly being generated from interest earnings,
late charges, pre-payment penalties, amortization of principal and pay-off on
Mortgage Investments. Currently, cash flow exceeds Partnership expenses and
earnings requirements. Excess cash flow will be invested in new Mortgage
Investment opportunities when available, and will be used to reduce the
Partnership credit line or for other Partnership business.
The General Partners regularly review the Mortgage Investments portfolio,
examining the status of delinquencies, the underlying collateral securing these
Mortgage Investments, borrowers payment records, etc. Data from the local real
estate market and of the national and local economy are reviewed. Based upon
this information and other data, loss reserves are increased or decreased. In
1996, 1997, 1998 and nine months through September 30, 1999, the Partnership
made provisions for doubtful accounts of $55,383, $139,804, $162,969 and
$374,138 respectively. These provisions for doubtful accounts were made to guard
against collection losses. The provision for doubtful accounts as of September
30, 1999, of $799,607 is considered by the General Partners to be adequate.
Because of the number of variables involved, the magnitude of the swings
possible and the General Partners inability to control many of these factors,
actual results may and do sometimes differ significantly from estimates made by
the General Partners.
The September 23, 1999 issue of the San Mateo Times, published a new UCLA
Anderson forecast which focused on the California economy. The General Partners
agree with the observations and predictions.
The UCLA forecast stated, "The California economy will grow at a healthy
pace over the next two decades, but there is little chance of returning to the
sustained economic boom that carried the state during the first four decades
following World War II.
California's economic growth will be limited by the consequences of
population growth: high housing costs, traffic congestion and long commute
times, according to the quarterly forecast released Tuesday. Looking at the
national scene, the forecast predicted the Federal Reserve Board will raise
interest rates another half percent over the next few months and then hold
steady at 5.75 percent through 2000 to further curb inflation risks. The
increase will slow economic growth from 3.9 percent in 1999 to 2.5 percent.
<PAGE>
"This forecast is for a very soft landing", the forecast said. In
California, employment will grow by about 2.1 percent annually through 2020,
good for a cumulative increase of 50 percent.
That rate contrasts with an average growth rate of 3.5 percent from 1950 to
1990, when the California economy depended heavily on the Cold War arms race and
expanding government space programs, said Tom Lieser, executive director of the
Anderson Forecast and author of the report's California section.
"A lot of that basically fell from the sky so to speak", Lieser said. "It
came from the defense budget right to our doorstep. California was blessed with
conditions that made this the capital of the aerospace industry".
That market changed in 1990 when the Cold War ended and defense spending
fell sharply.
The United States fell into recession, with California suffering more than
most other states. What eventually emerged, Lieser said, is an economy that is
more diverse and less vulnerable to the federal budget.
"Now we have a market-driven economy, which was built on the technological
specialization that we had from aerospace and our universities. We build on
that, but we don't have to worry about that going away". he said.
Aerospace employment peaked in the 1980s at 380,000, and fell to 165,000 by
1996 in the wake of the downsizing. Aerospace employment has stabilized, but
growth will be limited, the report said.
The challenge of the next two decades will be to build housing, roads and
other infrastructure that sustained growth will require".
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc. This
translates into more loan activity, which is beneficial to the Partnership.
At the time of subscription to the Partnership, Limited Partners must elect
whether to receive monthly, quarterly or annual cash distributions from the
Partnership, or to compound earnings in their capital account. If the Limited
Partner initially elects to receive monthly, quarterly or annual distributions,
such election, once made, is irrevocable. However a Limited Partner may change
his election regarding whether he wants to receive such distributions on a
monthly, quarterly or annual basis. If the Limited Partner initially elects to
compound earnings in his/her capital account, in lieu of cash distributions,
he/she may after three (3) years, change the election and receive monthly,
quarterly or annual cash distributions. Earnings allocable to Limited Partners
who elect to compound earnings in their capital account, will be retained by the
Partnership for making further Mortgage Investments or for other proper
Partnership purposes, and such amounts will be added to such Limited Partners'
Capital Accounts.
During the periods stated below, the Partnership, after allocation of
syndication costs, made the following distribution of earnings both to the
Limited Partners who elected to compound their earnings, and those that chose to
distribute:
Nine months through
1996 1997 1998 Sept 30, 1999
--------------------------------------------------------
Compounding $800,218 $1,119,465 $1,440,687 $1,472,257
Distributing $418,380 $495,480 $614,383 $585,122
As of December 31, 1996, December 31, 1997, December 31, 1998, and nine
months ending September 30, 1999, Limited Partners electing to withdraw earnings
represented 34%, 30% , 30% and 30% respectively of the Limited Partners
outstanding capital accounts. The decrease in the percentage of Limited Partners
electing to withdraw earnings is due to an increase of new Limited Partners
choosing to compound earnings and the dilution effect which occurs when
compounding Limited Partners' capital accounts grow through earnings
reinvestment.
<PAGE>
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). Once a Limited Partner's initial five year hold period
has passed, the General Partners expect to see an increase in liquidations due
to the ability of Limited Partners to withdraw without penalty. This affects the
Partnership by growing primarily through reinvestment of earnings
in years one through five. The General Partners expect to see increasing
numbers of Limited Partner withdrawals in years five through eleven, at which
time the bulk of those Limited Partners who have sought withdrawal have been
liquidated. After year eleven, liquidation generally subsides and the
Partnership capital again tends to increase through earnings reinvestment. Since
the five year hold period for most of the investors has yet to expire, as of
September 30, 1999, many Limited Partners may not as yet avail themselves of
this provision for liquidation. Earnings and capital liquidations including
early withdrawals since inception, 1993 through September 30, 1999 were:
<TABLE>
9 months
through
1993 1994 1995 1996 1997 1998 Sept 30, 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Liquidation $46,855 $165,814 $303,477 $418,380 $495,480 $614,383 $585,122
Capital Liquidation* 0 0 $5,640 $146,755 $132,619 $257,344 $409,669
---------------------------------------------------------------------------
Total $46,855 $165,814 $309,117 $565,135 $628,099 $871,727 $994,791
-----------------------------------------------------------------------------
</TABLE>
* These amounts represent gross of early withdrawal penalties.
Additionally, Limited Partners may liquidate their investment over a one
year period subject to certain limitations and penalties. During the past three
years, and nine months through September 30, 1999, capital liquidated subject to
the 10% penalty for early withdrawal was:
Nine months
through Sept 30,
1996 1997 1998 1999
-------------------------------------------------------------------
$146,755 $132,619 $244,213 $329,989
This represents only 1.00%, 0.63%, 0.90% and 0.63% of the Limited Partners
ending capital for the years ended December 31, 1996, 1997, 1998, and nine
months ending September 30, 1999 respectively. These withdrawals are within the
normally anticipated range and represent a small percentage of Limited Partner
capital
The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing
its assessment of Year 2000 hardware and software issues. The hardware issue is
fully complete and tested. The Partnership relies on Redwood Mortgage Corp., an
affiliate of the Partnership, third party and software vendors for its computer
software. Major services provided to the Partnership by these companies are loan
servicing, accounting and investor services. The software for loan servicing is
installed and is in compliance with Year 2000 issues. Installation of accounting
software that is Year 2000 compliant began and was completed during the second
quarter of 1999 and has been tested since that time. The investor servicing
software is still being modified, however software maintenance agreements
provide for Year 2000 compliance. Additionally, the Partnership has contacted
several outside vendors that provide investor services as a possible alternative
to providing investor services in house. These service providers will be more
expensive than the current in house systems, but they do provide a back-up
alternative. Reports are being run parallel to insure accuracy of Year 2000
compliance. This will continue through December 31, 1999.
The costs of updating the various software systems will be borne by the
various companies that supply the Partnership with services. Therefore, no
significant capital outlays are anticipated and the Partnership expects only
incidental costs of conversion for Year 2000 issues.
<PAGE>
The Partnership is in the business of making Mortgage Investments secured
by real estate. The most important factor in making the Mortgage Investments is
the value of the real estate security. Year 2000 issues have some potential to
affect industries and businesses located in the marketplaces in which the
Partnership places its Mortgage Investments. This would only have an effect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. The fact that Silicon Valley is located in our marketplace,
there may be significant increased demand for Silicon Valley type services and
goods as companies make ready for the Year 2000 conversion.
Although almost complete, if any or all accounting, loan servicing and
investor services conversions should fail, the size and scope of the
Partnership's activities are such that a failure could be handled at an equal or
higher cost. This could be done on a manual basis or outsourced to other
servicers existing in the industry, while correcting systems problems and are
likely to be temporarily in nature. While this would entail some initial set up
costs, these costs would likely not be so significant as to have a material
effect upon the Partnership. Shifting portions of daily operations to manual or
outsourced systems may result in time delays, which could negatively affect
customer relations and lead to the potential loss of new loans and Limited
Partner investments.
The foregoing analysis of Year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations and financial condition. As such, this analysis may prove to be
inaccurate because of assumptions made by the General Partners or the actual
development of future events. No assurance can be given that any of these
statements or predictions will ultimately prove to be correct or even
substantially correct.
Various other risks and uncertainties could also affect the Year 2000
analysis causing a more severe effect on the Partnership than discussed above.
The General Partners Year 2000 compliance testing cannot guarantee that all
computer systems will function without error beyond the Year 2000. Risks also
exist with respect to Year 2000 compliance by external parties who may have no
relationship to the Partnership or the General Partners, but who have a
significant relationship with one or more third parties, and may have a system
failure that adversely affects the Partnership's ability to conduct business.
While the General Partners are attempting to identify such external parties, no
assurance can be given that it will be able to do so.
Furthermore, third parties with direct relationships with the Partnership,
whose systems have been identified as likely to be Year 2000 compliant, may
suffer a breakdown due to unforeseen circumstances. It is also possible that the
information collected by the General Partners' for these third parties regarding
their compliance with Year 2000 issues may be incorrect. Finally, it should be
noted that the foregoing discussion of Year 2000 issues assumes that to the
extent the General Partners systems fail, whether because of unforeseen
complications or because of third parties' failure, switching to manual
operations will allow the Partnership to continue to conduct its business. While
the General Partner believes this assumption to be reasonable, if it is
incorrect, the Partnership's results of operations would likely be adversely
affected.
<PAGE>
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
- ------------------------------------------------------------------
The Partnership has no officers or directors. The Partnership is managed by
the General Partners. There are certain fees and other items paid to management
and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 6-7, under the section "Compensation of the General Partners
and the Affiliates", which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the nine months period ended September
30, 1999. All such compensation is in compliance with the guidelines and
limitations set forth in the Prospectus.
I.
Entity Receiving Compensation Description of Compensation Amount
and Services
- --------------------------------------------------------------------------------
Redwood Mortgage Corp. Mortgage Servicing Fee for
servicing Mortgage Investments.....$295,354
General Partners &/or Affiliate Asset Management Fee
for managing assets.................$30,248
General Partners 1% interest in profits $20,782
Less allocation of syndication
costs...................................951
_______
$19,831
II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED BY COMPANIES RELATED TO
THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP)
Entity Receiving Compensation Description of Compensation and Amount
Services
- --------------------------------------------------------------------------------
Redwood Mortgage Corp. Mortgage Brokerage Commission
for services in connection with
the review, selection, evaluation,
negotiation an extension of the
Mortgage Investments paid by the
borrowers and not by the Partnership....$492,343
Redwood Mortgage Corp. Processing and Escrow Fees for
services in connection with notary,
document preparation, credit
investigation, and excrow fees
payable by the borrowers and not by
the Partnership...........................$9,181
III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME. $60,541
<PAGE>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1999
Partnership Highlights
First Trust Deeds $21,539,375.11
Appraised Value of Properties* 37,193,543.00
Total Investment as a % of Appraised Value 57.91%
First Trust Deed Mortgage Investments 21,539,375.11
Second Trust Deed Mortgage Investments 11,890,329.52
Third Trust Deed Mortgage Investments 3,998,541.86
---------------
37,428,246.49
First Trust Deeds due other Lenders 24,648,724.00
Second Trust Deeds due other Lenders 3,099,110.00
---------------
Total Debt $65,176,080.49
Appraised Property Value* 106,683,182.00
Total Investment as a % of Appraised Value 61.09%
Number of Mortgage Investments Outstanding 56
Average Investment $668,361.54
Average Investment as a % of Net Partners Capital 1.97%
Largest Investment Outstanding 2,600,000.00
Largest Investment as a % of Net Partners Capital 7.68%
First Trust Deed Mortgage Investments 57.55%
Second Trust Deed Mortgage Investments 31.77%
Third Trust Deed Mortgage Investments 10.68%
________
Total 100.00%
Mortgage Investments by Type of Amount Percent
Property
Owner Occupied Homes $9,840,088.25 26.29%
Non Owner Occupied Homes 9,011,872.86 24.08%
Apartments 2,466,030.21 6.59%
Commercial 16,110,255.17 43.04%
-------------- -------
Total $37,428,246.49 100.00%
Statement of Conditions of Mortgage Investments.
Number of Mortgage Investments in Foreclosure -0-
*Values used are the appraised values utilized at the time the mortgage
investment was consummated.
<PAGE>
Diversification by County Total Percent
Mortgage
Investments
San Francisco $10,593,931.38 28.30%
Stanislaus 8,873,927.16 23.71%
San Mateo 7,689,866.92 20.55%
Santa Clara 5,989,283.44 16.00%
Marin 2,255,273.49 6.03%
Lake 737,500.00 1.97%
Contra Costa 431,446.42 1.15%
Alameda 406,445.04 1.09%
San Joaquin 228,257.64 0.61%
Fresno 127,836.11 0.34%
Riverside 50,000.00 0.13%
Sacramento 44,496.89 0.12%
-------------- -------
Total $37,428,246.49 100.00%
<PAGE>
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in the Securities
-------------------------
Not Applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
Not Applicable
(b) Form 8-K
The registrant has not filed any reports on Form 8-K
during the quarter ended September 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 10th day of
November, 1999.
REDWOOD MORTGAGE INVESTORS VIII
By: /s/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /s/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /s/ D. Russell Burwell
----------------------------------------------
D. Russell Burwell, President
By: /s/ Michael R. Burwell
----------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 10th day of November, 1999.
Signature Title Date
- --------- ------ ----
/s/ D. Russell Burwell
D. Russell Burwell General Partner November 10, 1999
/s/ Michael R. Burwell
- ----------------------------
Michael R. Burwell General Partner November 10, 1999
/s/ D. Russell Burwell
- ---------------------------- November 10, 1999
D. Russell Burwell President of Gymno Corporation,
(Principal Executive Officer);
Director of Gymno Corporation
/s/ Michael R. Burwell
- ----------------------------
Michael R. Burwell Secretary/Treasurer of Gymno November 10, 1999
Corporation (Principal Financial
and Accouonting Officer);
Director of Gymno Corporation
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,038,226
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4,793,978
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<OTHER-SE> 33,845,577
<TOTAL-LIABILITY-AND-EQUITY> 38,639,555
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<TOTAL-REVENUES> 3,349,738
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